Using a limited research and development budget to best effect could be the difference between success and failure, as Jonathan Weinberg reports
Whether you’re a cash-strapped start-up or multi-million-pound business, research and development is vital. It fuels growth, keeps you one step ahead of competitors and ensures you understand your customers.
But with many facing limited R&D funds, should your cash always be focused on an end product or is there ever room to take a bit of a gamble?
Andy Gent, chief executive of Revector, says you must try to do both. The former engineer exports his anti-fraud and revenue protection to mobile network operators in 80 countries and ploughs a fifth of annual revenues into R&D.
“Understanding the fast changing market and trying new things is central to developing winning innovative products and services,” he says. “I believe in creating a basic spec, but then building something as quickly as possible, which can be demonstrated to get real feedback. If everything is positive, you can re-engineer and develop, adding in feedback from the clients and markets.”
Mr Gent emphasises the importance of harvesting opinions. He cites it as responsible for the additional services implemented in his latest project, even though they were not in the original specification.
Taking a ‘safe’ option will never bring the innovation required to be a leader
But he doesn’t rule out a punt. “If one of our team has an idea we think is worth a gamble, we will build the product. We have a number still-born, but in doing so there is always good learning for other products or services,” he says.
“Taking a ‘safe’ option will never bring the innovation required to be a leader.”
Business Secretary Vince Cable is a huge supporter of R&D. Innovation is the driving force of growth, he says, pledging the Coalition Government to do all it can to encourage R&D spending to bolster the UK economy.
His department funds the Technology Strategy Board (TSB) to provide grants for businesses to bridge what Dr Cable calls the “valley of death” between ideas and the marketplace.
Referring to the tax relief available for R&D, he adds: “Government has also put in place a tax regime that supports innovation, investment in enterprise, business-friendly regulatory processes and a modern infrastructure that enables the UK to be internationally competitive.”
Clothing manufacturer Made In Preston uses its limited R&D spending to respond faster than its competitors. Its Lancashire factory produces fashion for ladies with larger busts and two of its ten employees are tasked with R&D for new lines.
Owner Nikki Hesford says this is key when many clothing brands and stores are closing.
She explains: “Our USP [unique selling proposition] is we can respond to trends and consumer demand very quickly with all facilities under our own roof. Brands who prosper are the ones at the forefront of trends. You simply cannot do that without R&D.”
But Ms Hesford admits: “As a new brand, we have to have relative certainty about the viability of a product before utilising our resources in developing it. As we grow we would set aside perhaps 10 to 15 per cent of our R&D budget on ‘gambles’.”
Nissan is an example of a larger company tailoring R&D from customer feedback. At the motor manufacturer’s main European R&D base in the UK, engineers played a key role in 100 changes to its market-leading electric vehicle, the Leaf. Many came from suggestions by original Leaf owners or were found through car forums.
Malcolm Holmes, manager for electronics and electrical design at Nissan Technical Centre Europe, says: “Nissan is keen to ensure all the technology we bring to the Leaf is innovative and adds excitement. We do not put in gimmicks. All technologies give a true value for the customer.”
R&D doesn’t have to cost a fortune either as Alice Bentinck, co-founder of Entrepreneur First, says. Its 2012 cohort of graduates created 11 start-ups now valued at £17 million, including mobile advertising problem-solver AdBrain, which has just closed a $1.5-million seed round.
“We find our start-ups spend the first three months speaking to a broad range of potential users, whether it be pestering people in Starbucks for five minutes of their time or more formal one-on-one interviews,” says Ms Bentinck.
“This kind of research is time-intensive, but largely free. The best start-ups continue this testing process as they build and grow – A/B testing, customer feedback and site analytics are efficient and cost effective.”
Ann Parker, head of operations for Wayra Europe, says: “We always advise start-ups take quite a planned approach to R&D – first and foremost they must ensure that there is a definite space in the market for their product, which can generally be done through detailed desk research.
“The second step is to pull enough money together to develop a beta product that can be tested. Consumers will always give the best product feedback. This approach means not too much money is spent before the product is fully developed when changes are harder and more expensive to make.”
Shoreditch-based Mind Candy is taking a totally innovative approach to R&D by putting the kids in charge. As one of the UK’s fastest-growing companies, it is the brains behind the phenomenally successful Moshi Monsters brand and is creating an advisory board of 13 to 19 year olds to test its new mobile app.
Mary Henley, user researcher at Mind Candy, says: “People visit each week to play and provide valuable feedback so we continue making awesome games. Their insights can be fed back into the design process and have a direct influence on features.”
But for all the R&D in the world, Geoff McCormick of design consultancy TheAlloy claims 90 per cent of innovation actually fails. And he says it is important to remember today’s R&D is not just about discoveries made by scientists in “white coats and labs”.
“We believe scientific and technical skills need to be balanced by a humanistic understanding of peoples’ needs, wants and desires – that true innovation lies in answering a human need or challenge,” he says.